JPMorgan Overtakes Wells Fargo as Most Valuable U.S. Bank

By Dakin Campbell and Dawn Kopecki -
Feb 7, 2013

JPMorgan Chase & Co., the biggest
U.S. bank by assets, reclaimed the No. 1 title by market value
as the impact of last year’s wrong-way bet on derivatives fades
and investors wager on an investment-banking rebound.

JPMorgan shares rose 1.6 percent this week, valuing the
bank at $184.9 billion through yesterday. That eclipsed the
$184.2 billion for Wells Fargo & Co., which slipped to No. 2 on
Feb. 5 after being the most valuable since Oct. 28, 2011,
according to data compiled by Bloomberg.

The recovery shows JPMorgan Chief Executive Officer Jamie Dimon has blunted fallout from last year’s trading loss, which
wiped out as much as $51 billion in shareholder value. Wells
Fargo, led by CEO John Stumpf, 59, has seen the rise of its
shares slow amid investor concerns that weaker mortgage lending
and shrinking margins will crimp profit.

“Capital-market firms like JPMorgan have been burdened
quite heavily by the financial debacle, more so than regional or
national banks like Wells Fargo,” said Gerard Cassidy, an
analyst at RBC Capital Markets. “As they continue to throw the
baggage overboard, all of these legacy issues that have been
hampering profit are going away. Owning the riskier names is
more attractive today in this economy.”

Investors should bypass regional lenders for universal
banks such as New York-based JPMorgan because the larger firms
have lower price-to-earnings and price-to-book ratios and the
Federal Reserve’s bond purchases will encourage trading and hurt
lending spreads, David Konrad, a KBW Inc. analyst, said in his
2013 outlook.

‘Below Book’

JPMorgan has gained 11 percent this year, outpacing Wells
Fargo’s 2.3 percent advance and the 7.3 percent climb for the
24-company KBW Bank Index. JPMorgan trades at 0.95 times book
value, a measure of assets minus liabilities, compared with 1.27
for San Francisco-based Wells Fargo.

“If you are less worried about risk you will start to bid
up these shares, which are trading at below book,” said
Jennifer Thompson, an analyst at Portales Partners LLC. “That’s
where you will focus in terms of relative upside.”

JPMorgan lost more than $6.2 billion in the first nine
months of last year from trades on credit derivatives made at
its chief investment office in London. The trader who amassed
the position came to be known as the London Whale because the
bets were big enough to move the market.

Dimon’s ‘Tempest’

The bank first disclosed losses from the wagers in May,
almost a month after Dimon dismissed initial news reports on the
wagers as a “tempest in a teapot.” Dimon, 56, whose pay was
cut 50 percent this year to $11.5 million, said last month that
the company is almost done booking losses from the trades.

“JPMorgan sustained a black eye, as did Jamie Dimon,”
Cassidy said. Now “the market has given its verdict: the London
Whale was a trading problem that was blown out of proportion and
now it’s been put back into perspective.”

Deutsche Bank AG analysts led by Matt O’Connor upgraded
JPMorgan to buy from hold on Jan. 25, citing a 30 percent
underperformance in the shares compared with global banks since
early August. JPMorgan, which posted a third straight year of
record profit with $21.3 billion for 2012, may see annual
operating expenses drop as much as $5 billion as costs to
service mortgages fall, the analysts said in a note to clients.

Wells Fargo’s mortgage revenue, which helped the lender
report record profit of $18.9 billion last year, may decline 18
percent this year to $10 billion from 2012 once loan repurchases
are discounted, Richard Staite, an analyst at Atlantic Equities
LLP, wrote in a Jan. 29 research note.